Morgan Stanley delivered Q2 results that underwhelmed on Tuesday.
The second quarter began with “subdued client activity,” James Gorman, who’s set to step down soon, remarked.
The firm observed “a more constructive tone” in June, though, and Gorman later told Bloomberg that in his view, dealmaking and trading has likely “bottomed.” Management’s cautiously optimistic outlook helped bolster the shares despite the lackluster report.
Firmwide revenue of $13.46 billion in Q2 and EPS of $1.24 counted as beats, but FICC missed badly. $1.72 billion in revenue represented a 31% decline from the same period a year ago, and fell well short of the $1.97 billion the Street expected.
Equities trading revenue dropped 14%, but came in ahead of expectations. In FICC, the firm described “declines across most products, with the exception of rates, as a result of lower client activity and lower market volatility compared with elevated levels a year ago.”
To be sure, this wasn’t unexpected. Management suggested throughout the quarter that trading and IB would compare unfavorably (and perhaps very unfavorably) to Q2 of 2022, but that was presumably baked into consensus. As the figure above shows, Morgan’s results also compared unfavorably to the rest of the Street, although Goldman’s report is likely to be among the worst of David Solomon’s tenure.
IB revenue at Morgan was $1.08 billon, slightly ahead of estimates. But make no mistake, the environment is still very challenging.
Advisory revenue of $455 million was a small beat, the same was true for equities underwriting which, at $225 million, topped estimates by $10 million. Fixed income underwriting beat by 13%, so I guess that counted as a bright spot. Q3 2021 was the high mark for Morgan’s IB revenue.
Sharon Yeshaya told the media that the firm’s deal backlog and underwriting pipeline is growing. The firm has consistently emphasized that dealmaking isn’t dead. It’s just resting. It should wake up later this year. Or maybe next year, depending on who you ask. And what day it is.
On the bright side, wealth management revenue managed to eke out another new record at $6.67 billion, up handily from Q2 2022. Net interest income in the unit rose more than 23% YoY.
As a reminder, Morgan intends to generate at least $12 billion in pretax profits from the wealth management business over the longer-term.
The firm’s severance costs exceeded $300 million in Q2 tied to thousands of job cuts.
Obviously, this doesn’t make for the most exciting reading, but as I’m always keen to emphasize during big bank earnings, you can’t have it both ways. If you think it’s important to keep up with Wall Street, both as a barometer of the macro mood and market environment, as well as a kind of gauge for the extent to which society is becoming more bifurcated, you have to parse the quarterly reports.
Gorman on Tuesday described his firm’s results as “solid.” He’s “confident” in the bank’s “ability to grow in various market environments” including, I assume, an environment where he’s no longer at the helm.
